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Mega Fraud In NNPC: How $ 5. 7 m Penalty Fund Grew Wings!


Another indication that Nigeria’s petroleum sector is suffering from a cancerous rot emerged recently when the Auditor-General of the Federation, Samuel Ukura disclosed that there have been obvious cases of mismanagement in the account of the Nigerian National Petroleum Corporation (NNPC).

The revelation was contained in a report titled: “Annual Report of the Auditor-General of the Federation on the accounts of the Federation of Nigeria for the Year Ended December 31, 2010”, a copy of which was forwarded to the National Assembly.  In the report, the Auditor General of the Federation also observed gross abuse in the Joint Venture Cash Call Account.

The report reads in part, “penalty charges amounting to USD$5,700,000.00 for late submission of letters of credit were not collected from crude oil customers who failed to submit letters of credit within five (5) business days… as stipulated by Article 13.3 of the general conditions of the Sale and Purchase Agreement (SPA).

The Group Managing Director had been informed through the Accountant-General of the Federation to recover the above penalty charges from the affected crude oil and gas customers”.

It was also stated in the report that “The Internal Audit Unit of Crude Oil Marketing Department (COMD) of Nigerian National Petroleum Corporation (NNPC) used green ink when carrying out the routine audit of the records of the department. This practice is a contravention of the provision of the Financial Regulation (2009) 3002 which states that ‘except in the case of drawing offices, where they may be required for the preparation of maps and plans, the use of green ink or pencils in the recording of checking of accounting or store transactions by officers other than those in the office of the Auditor-General is strictly forbidden.’”

The report continued that “in the year under review, the following observations were made: An amount of USD$55,789,478.04 was outstanding against some foreign crude oil customers and are no longer engaging in business with NNPC.

An amount of N377,364,075.70 was outstanding against some local crude oil customers. Since local sales of crude oil attracts only ninety (90) days credit facility, considering the age analysis of the debts, it would appear that serious efforts were not made for the recovery of these debts.”

The Joint Venture Cash Call was given attention in the report. It was stated in that segment of the report that: “In the year under review, the following observations were made during the examination of the Joint Venture Cash Call Account (i) Interest earned on Joint Venture Cash Call Account amounting to USD$1,449,047.58 was not paid into the Federation Account as petroleum related revenue.

(ii) An amount of USD$200,000,000.00 was paid to NNPC Corporate Headquarters as security payment. This expenditure was not included in the approved budget of the Joint Venture operators and the nature of the security as well as the beneficiaries were not disclosed.

The statutory auditor of the Joint Venture operators only submitted the audited accounts of the operators to NNPC/NAPIMS without the accompanied Management Reports (Letter of Weakness). Management Report on audited Financial Statement is a vital supporting document detailing weaknesses observed by the auditor in the internal control system of the audited entity. Considering the magnitude of the interest of NNPC/NAPIMS in the operation of the Joint Venture Operators and the nature of the business, it is imperative for NNPC/NAPIMS to have access to the Management Reports (Letter of Weaknesses) of the operators in order to determine the level of weakness in the Internal control system of the operators and to make necessary recommendations for improvement. It should be noted that the non- inclusion of the Management Reports with the Audited Financial Statements made the audit assignment incomplete.

Examination of Annual Returns from the Joint Venture Operators for the year ended December 31, 2010, showed that Joint Venture Cash Call amounting to USD$824,410.23 and N120,496,213,000.00 were in arrears as at the above date. Inability of NNPC/NAPIMS to meet up with the Cash Call obligations based on the approved cash call budget would appear to impede the general performance of the Joint Venture Operators vis-a-vis revenue accruable to the Federation Accounts.’’

It was also stated in the report that  “a loan of USD$250,000,000.00 was granted to NNPC to fund pipeline expansion, up till date, payment of this loan is yet to be made by NNPC to the Joint Venture Cash Call Account.

During the examination of the Bank Statements of the Bank Accounts of the Joint Venture Operators, it was observed that some operators overdrew their Naira Joint Venture Operation Accounts totaling N15,653,723,618.70. Authority for the operators to obtain the overdrafts was not made available to the Team of Auditors. In addition, it was observed that high interest charges on the overdrafts, which was not budgeted for constitute a drain on the available Joint Venture Cash Call Funds of the affected operators.”

The report further revealed that “an amount of USD$282,950,223.60 was paid from the Joint Venture Cash Call Account on July 5, 2010 to NNPC Corporate Headquarters for the purpose of funding Escravos-Lagos pipeline expansion project Phase 2. As at the time the fund was released by NAPIMS, the budget in respect of the project for the year 2010 was not yet approved. Hence the fund was released in anticipation of the approval of the 2010 budget, which means that when the 2010 budget in respect of the project is approved and released, the money would be refunded to the Joint Venture Cash Call Account where it was drawn. However, there was no evidence of such refund into the Account as at the time of the audit in September 2011. Using fund meant for Joint Venture Cash Call to finance different projects for which it was not budgeted without the approval of the National Assembly, amounts to unauthorized virement of fund.”

It was also contained in the report that “The Group Managing Director has been informed through the Accountant General of the Federation to pay the interest of US$1,449,047.58 earned on the Joint Venture Cash Call Account into the Federation account; explain the payment of US$200,000,000 outside the approved budgetary provision with detailed evidence of disbursement, nature of security and acknowledgement from the beneficiaries; make sure that the loan of US$250,000,000 is refunded to Joint Venture Cash Call JP Morgan Chase account without delay; make available the authority for the operators to obtain the overdrafts. However, in the absence of an authority for the overdrafts, the interest charged on the overdrafts should be determined and the affected operators should be made to refund their own portion.’’

The Department of Petroleum Resources (DPR) was also indicted by a part of the report which stated that “During the audit examination of accounting and other records at the Department of Petroleum Resources, for the Federation Account Revenue, it was observed that the computation of royalties payable by the oil companies was based on the actual crude oil lifted by them and not calculated on actual production figures contrary to the provisions of the MOUs with the relevant oil companies. The MOUs provide that payment of royalties should be based on production volume multiplied by the prescribed royalty rates.”

When contacted, The General Manager, Media Relations of the NNPC, Dr. Farouk Umar, said that the Corporation had not received a copy of the report. He said when it does, the report would be studied and reactions would follow.

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